Both the stock market and the gold market had a strong first quarter to begin the New Year. As we get deeper and deeper into the Trump Presidency, however, things may not look quite as rosy as they did a few short weeks ago.
It’s no secret that the rally in equities and risk assets over the last several months has been built on the notion of major tax reforms and massive fiscal spending. The promise of returning manufacturing jobs to the U.S. and looking to improve trade deficits has also been a factor in the stock market’s ascent.
That ascent in equities has potentially run its course, however. There are numerous economic and geopolitical issues on the horizon that could potentially lead to a significant shift in investor sentiment and a corresponding spike in market volatility.
Although there are numerous things that have the potential to fuel volatility and make investors anxious, here are a few of the major ones that could potentially shake global financial markets and fuel demand for safe haven assets such as gold and other metals:
Trump’s tax reforms may not see the light of day: The Trump administration’s tax cuts are already running into a wall of resistance. Massive tax cuts combined with a significant boost in defense and fiscal spending leads to higher deficits. After the Trump administration was not able to put together a vote to repeal the Affordable care Act, investors may begin to doubt its ability to pass other key pieces of legislation. Markets have moved sharply higher on the idea of tax cuts and more spending, and if this does not come to fruition they will have to adjust which could lead to volatility and sharply lower stock prices.
Here comes the debt ceiling again: The continuing resolution that prevented a government shutdown is set to expire at the end of April. The debt ceiling could potentially become a major source of partisan bickering. The idea of an agreement not being reached and the first ever U.S. default could potentially send shockwaves through global financial markets. If the debt ceiling is raised, the nation is still adding to its already enormous debt load. Either way, the ceiling could fuel significant demand for gold and other perceived safe haven assets.
North Korean saber rattling: It is certainly no secret that tensions between the U.S. and North Korea have been on the rise. Ongoing provocations by the North Korean Government have not gone unnoticed, and the U.S. has said that it is willing to take unilateral action against the nation if necessary. As the country becomes more advanced in its nuclear capabilities, the issue becomes more and more urgent. The U.S. would undoubtedly prefer to have China’s support in any efforts against North Korea, and this week’s meeting between President Trump and Chinese leader Xi Jinping may be very significant.
All of these issues have the potential to be a major catalyst for market volatility and lower stock prices. They also have the potential to fuel what could be a major rally higher in gold and other perceived safe haven asset classes. The next few weeks could become very interesting, and could see a dramatic shift in investor sentiment.